July 18, 2023

Daily Market Commentary

Canadian Headlines

  • Shawcor Ltd., dba Mattr Infratech (“Mattr” or the “Company”) (TSX: MATR) announced today that it intends to host an investor day on Monday, December 11th, 2023 in downtown Toronto. In addition, the Company will offer an optional tour of its Rexdale facility on December 12th, 2023.

World Headlines

  • European stocks edged up on Tuesday as investor focus started to turn to company earnings from economic data and monetary policy. Novartis AG climbed after raising its profit outlook and announcing plans for a share buyback of up to $15 billion. The Stoxx Europe 600 index was up 0.2% as of 10:12 am in London. Healthcare, media and basic resources stocks led gains, while telecoms declined. Tele2 dropped after setting higher guidance on capital expenditure.
  • S&P 500 futures held steady after Bank of America Corp.’s second-quarter profit soared on a surprise gain from its core Wall Street businesses. That followed last week’s batch of upbeat results from JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. through a quarter that included regional banking tumult and ongoing interest-rate hikes amid inflation concerns. Bets are rising that central banks are winning their battle against inflation without driving economies into deep recessions, according to Bank of America’s latest survey of fund managers. Consumer price index reports are due out of the Eurozone and UK Wednesday, after data last week showed US price pressures cooled more than economists had forecast.
  • Asian stocks declined, on course for a second day of losses, as Hong Kong played catch-up following weaker-than-expected Chinese economic growth. The MSCI Asia Pacific Index slipped as much as 0.3% before paring some of the loss, with Tencent and TSMC among the biggest drags. Hong Kong’s benchmark dropped more than 2% with property stocks among the biggest losers as the market reopened after a typhoon canceled Monday’s session. Equities fell in mainland China for a second day, with Taiwan, South Korea and Australia also posting notable declines. The main Asian stock benchmark has stumbled for the past two days after its best weekly rally since January. The gauge is up 8% this year, underperforming key US and global measures amid concerns over China’s slow recovery.
  • Oil steadied after dropping almost 4% over the previous two sessions as concerns over the state of China’s economy were offset by Russia’s plans to cut crude exports. West Texas Intermediate traded above $74 a barrel, after falling by 1.7% on Monday as a major Libyan oil field came back online and China’s second-quarter growth missed expectations. That led several Wall Street banks to slash their growth forecasts for the biggest crude importer, and Treasury Secretary Janet Yellen to warn of the risk of global ripple effects. The slump in global oil prices over the last few days comes after a rally since late June that’s been driven by signs the market is tightening following production cutbacks by OPEC+ heavyweights Saudi Arabia and Russia. Crude is still down for the year as China’s lackluster recovery and the Federal Reserve’s aggressive rate-hiking cycle weigh on demand.
  • Gold edged higher as US bond yields fell following dovish commentary from a key European Central Bank official. Bullion is consolidating around $1,950 an ounce as investors wait for a clearer outlook on the Federal Reserve’s monetary policy path. While swaps traders see a hike at its next meeting as virtually guaranteed, consensus becomes more divided from there. Spot gold rose 0.5% to $1,964.21 an ounce at 11:48 a.m. in London, after gaining almost 2% over the previous two weeks. The Bloomberg Dollar Spot Index fell 0.1%. Silver, platinum and palladium all climbed.
  • The Biden administration’s plans to restrict investments in China will be narrowly focused on cutting-edge technology, only new investments, and likely won’t go into effect until next year as the policy grinds through Washington’s bureaucracy. Officials are aiming to wrap up a proposal by the end of August for the long-delayed program to screen and possibly prohibit investment in China’s semiconductor, quantum-computing and artificial intelligence sectors, according to people familiar with the plans, who asked not to be identified because the details are still private. In a sign of how the administration’s early ambitions have been cut back, the restrictions are likely only to apply to new investments, and the administration has also decided to spare the biotechnology and energy sectors, the people said.
  • European Central Bank Governing Council member Klaas Knot said monetary tightening beyond next week’s meeting is anything but guaranteed — suggesting officials could soon pause their unprecedented campaign of interest-rate hikes. The remarks signal that market and analyst expectations for two more quarter-point increases in the deposit rate, to 4%, may be overblown. Government bonds extended gains, and the euro retreated from the strongest level against the dollar in almost one and a half years, as traders pared rate-hike bets after Knot spoke.
  • Ukraine and Russia accused each other of overnight drone attacks hours after Russian President Vladimir Putin vowed revenge for a strike that damaged his flagship bridge to Crimea. Russia’s Defense Ministry said 28 Ukrainian drones attempted to attack facilities in Crimea, one of the most intense drone strikes against the peninsula since the war began. All the unmanned aerial vehicles were repelled and there were no reports of damage or injuries, according to a statement on the ministry’s Telegram channel. Ukrainian officials said they downed a total of 31 drones in the southern regions of Odesa and Mykolayiv and also intercepted six Kalibr missiles launched from the Black Sea. An industrial facility in the southern Mykolayiv region was hit during the Russian attacks and debris from one of the intercepted missiles damaged port infrastructure facilities in Odesa, regional officials said.
  • Novartis AG raised its profit outlook and announced plans to buy back as much as $15 billion in shares as it prepares to spin off its Sandoz generics unit. Operating profit excluding some items will likely grow by low double digits this year, the Swiss drugmaker said in a statement, raising its forecast for a second time from a prior estimate of high single-digits gains. The stock rose as much as 4% in Zurich trading. Novartis has worked on severing itself from Sandoz for almost a year to hone its focus on more lucrative innovative medicines. The spinoff will take place in the fourth quarter if shareholders endorse it at a meeting on Sept. 15, the company said.
  • Japan suspended imports of live chicken and chicken meat from the Brazilian state of Santa Catarina following the detection of a bird flu case in a domestic flock in the city of Maracajá. The Brazilian Ministry of Agriculture is working to reduce the impact on exporters and sent the required explanations to Japanese authorities, it said in a statement. Brazil continues to be considered free of the Highly Pathogenic Avian Influenza virus, according to the ministry, because that status doesn’t count cases in wild and domestic subsistence birds. Monthly shipments of chicken meat from Santa Catarina plants to Japan represent less than 3% of the total exported by Brazil, according to the country’s Animal Protein Association. The group expects part of the impact of the suspension will be absorbed by other exporters in other states, reducing the impact on Brazilian shippers and Japanese consumers.
  • Treasury Secretary Janet Yellen said a cooling — but not faltering — labor market is playing a key role in helping to slow US inflation, among a raft of factors imposing disinflationary pressures. “The intensity of hiring demands on the part of firms has subsided,” Yellen said Tuesday in an interview with Bloomberg News. “The labor market’s cooling without there being any real distress associated with it.” Along with job-market shifts, Yellen cited housing costs and vehicle prices among factors that are likely to keep pushing down cost pressures. She also suggested that corporate profit margins could play a role. At the same time, she urged against excessive optimism based solely on June’s consumer price data.
  • Investors are increasingly betting on a soft landing for the global economy, while big technology stocks are getting even more crowded on the expected boon to profits from artificial intelligence. Those are key findings of Bank of America Corp.’s July global survey, conducted in the week through July 13. The firm found that 68% of surveyed fund managers expect an economic slowdown without a recession, while corporate profit expectations are now the least pessimistic since February 2022. In another sign of improving risk sentiment, investors are underweight global stocks by the smallest amount so far this year, according to BofA. Being long big tech stocks topped the list of most crowded trades, while 42% of polled fund managers say AI will increase profits over the next two years. Investors now see the Federal Reserve reducing interest rates in the second quarter of 2024, according to BofA; in last month’s survey they predicted a cut in the first quarter.
  • Bank of New York Mellon Corp. reported earnings that beat estimates after interest income surged on higher rates. Adjusted earnings per share rose 20% to $1.38 for the quarter through June, ahead of the average $1.22 forecast by analysts tracked by Bloomberg. Assets under custody or administration rose 9% to $46.9 trillion at the end of the period, reflecting higher market values, client inflows and net new business, New York-based BNY Mellon said in a statement Tuesday.
  • BlackRock Inc. has named Saudi Aramco Chief Executive Officer Amin Nasser to its board, underscoring the asset manager’s commitment to the oil industry in the middle of a highly politicized debate about its role in ESG investing. Nasser has led the world’s biggest oil producer since 2015, including overseeing its public listing, and provides BlackRock with “a unique perspective” on key issues facing the company and its clients, CEO Larry Fink said Monday in an emailed statement. BlackRock and Fink, 70, have been criticized by both sides of the political divide over ESG investing after promoting the strategy as a way to help the global economy respond to climate change. Environmental advocates have slammed the firm for continuing to pile capital into the fossil fuel industry, while some Republicans have accused BlackRock of peddling a “woke” agenda that they say is at odds with American capitalism.
  • A conglomerate owned by one of Argentina’s richest families with oil fortunes is making its first major investment into the global clean-energy transition. Corporacion America International will build a €100 million ($112 million) ammonia plant in Burgos, Spain, fueled by solar or wind farms, Hugo Eurnekian, chief executive officer of the holding company’s oil and gas producer Compania General de Combustibles, said in an interview. The “green” ammonia, produced with hydrogen extracted from water in a process powered by the renewable energy, would be sold from 2027 to a livestock feed maker.
  • The second coming of Walt Disney Co.’s Bob Iger has been extended given the challenges he faces — particularly when it comes to restoring the stock market magic of his first tenure. The entertainment giant’s shares rose nearly sixfold during Iger’s first 15-year stint as chief executive officer through to February 2020. His successor Bob Chapek oversaw a 28% decline during a brief and tumultuous stretch, as the Covid-19 pandemic forced Disney to temporarily shutter theme parks, its film studio and cruise businesses. So far, the stock is down 6.8% since Iger’s return as CEO in November, while the S&P 500 Index has rallied 14% in that time. Netflix Inc., which competes with Disney directly in streaming, is up 56% and its market capitalization is now leading by the widest margin ever.
  • US bank regulators are set to release their plans next week for a sweeping overhaul of capital rules, with the latest draft including requirements for large lenders’ residential mortgages that go beyond international standards. The changes would be part of the US version of a global accord known as Basel III that followed the financial crisis. The plans are poised to be unveiled July 27 by the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, according to three people familiar with the proposal who asked not to be identified discussing details before the announcement. Although regulators have said big Wall Street banks might face a 20% average increase in overall capital requirements, the focus on large lenders’ residential mortgages hasn’t been mentioned. The US had been expected to keep these mortgages in-line with the international framework.